ZaraAnnual-English2010

Consolidated Financial Statements | Notes To The Consolidated Financial Statements December 31, 2010 Annual Report 2010
Available for sale financial assets
These are initially recognized at cost, being the fair value of
consideration given including directly attributable transaction
costs and subsequently re-measured at fair value. Fair value
changes are reported as a separate component of equity
until the investment is derecognized or the investment is
determined to be impaired. On derecognizing or impairment
the cumulative gain or loss previously reported as equity, is
included in the consolidated statement of income
Available-for-sale financial investments include equity
securities. Equity investments classified as available-for-sale
are those, which are neither classified as held for trading nor
designated at fair value through profit or loss.
After initial measurement, available-for-sale financial assets
are subsequently measured at fair value with unrealized gains
or losses recognized as other comprehensive income in the
cumulative change in fair value of available-for-sale financial
assets until the investment is derecognized, at which time
the cumulative gain or loss is recognized in the consolidated
statement of income, or determined to be impaired, at which
time the cumulative loss is reclassified to the consolidated
statement of income and removed from the cumulative
change in fair value of available-for-sale financial assets. The
Group evaluated its available-for-sale financial assets whether
the ability and intention to sell them in the near term is still
appropriate.
For available-for-sale financial assets, the Group assesses at
each reporting date whether there is objective evidence that
an investment or a group of investments is impaired.
In the case of equity investments classified as availablefor-sale,
objective evidence would include a significant or
prolonged decline in the fair value of the investment below
its cost. ‘Significant’ is evaluated against the original cost of the
investment and ‘prolonged’ against the period in which the fair
value has been below its original cost. Where there is evidence
of impairment, the cumulative loss – measured as the difference
between the acquisition cost and the current fair value, less any
impairment loss on that investment previously recognized in
the consolidated statement of income – is removed from other
comprehensive income and recognized in the consolidated
statement of income. Impairment losses on equity investments
are not reversed through the consolidated statement of income;
increases in their fair value after impairment are recognized
directly in other comprehensive income.
Fair value
The fair value of financial instruments that are traded in active
markets at each reporting date is determined by reference to
quoted market prices or dealer price quotations (bid price for
long positions and ask price for short positions), without any
deduction for transaction costs.
For financial instruments not traded in an active market, the fair
value is determined using appropriate valuation techniques.
Such techniques may include using recent arm’s length market
transactions; reference to the current fair value of another
instrument that is substantially the same; a discounted cash
flow analysis or other valuation models.
In case of an available-for-sale financial assets cannot be
measured reliably it is stated at cost less any impairment
provision.
Derecognition of financial assets
A financial asset (or, where applicable a part of a financial asset
or part of a group of similar financial assets) is derecognised
when:
• he rights to receive cash flows from the asset have expired;
or
• The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third
party under a ‘pass-through’ arrangement; and either (a) the
Group has transferred substantially all the risks and rewards
of the asset, or (b) the Group has neither transferred nor
retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement,
and has neither transferred nor retained substantially all of
the risks and rewards of the asset nor transferred control of
the asset, the asset is recognised to the extent of the Group’s
continuing involvement in the asset.
In that case, the Group also recognises an associated liability.
The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the
Group has retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net
amount reported in the consolidated statement of financial
position if, and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Inventories
Inventories are valued at the lower of cost (weighted average
costing) and net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business,
less estimated costs of completion and the estimated costs
necessary to make the sale.
Accounts receivable
Accounts receivable are amounts due from customers for
merchandise sold or services performed in the ordinary course
of business.
Accounts receivable are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
The Group first assesses whether objective evidence of
impairment exists individually for financial assets that are
individually significant, or collectively for financial assets that
are not individually significant. If the Group determines that
no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes
the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for
which an impairment loss is, or continues to be, recognized
are not included in a collective assessment of impairment. If
there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the assets carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred).
The carrying amount of the asset is reduced through the use of
an allowance account and the amount of the loss is recognized
in the consolidated statement of income. If, in a subsequent
year, the amount of the estimated impairment loss increases or
decreases because of an event occurring after the impairment
was recognized, the previously recognized impairment loss is
increased or reduced by adjusting the allowance account. If a
future write-off is later recovered, the recovery is credited to
other income in the consolidated statement of income.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at banks and on hand and short-term deposits
with a maturity of three months or less.
For the purpose of the consolidated statement cash flows, cash
and cash equivalents consist of cash and short-term deposits
as defined above, net of outstanding bank overdrafts.
Loans and borrowings
After initial recognition, interest bearing loans and borrowings
are subsequently measured at amortized cost using the
effective interest rate method. Gains and losses are recognized
in the income statement when the liabilities are derecognized
as well as through the effective interest rate method (EIR)
amortization process.
Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortization is included in
finance costs in the income statement
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in the statement of
income.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalized as part of the cost of the respective assets.
All other borrowing costs are expensed in the period they
occur. Borrowing costs consist of interest and other costs that
an entity incurs in connection with the borrowing of funds.
Accounts payable and accruals
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Provisions
Provisions are recognized when the Group has a present
obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the
obligation. Where the Group expects some or all of a provision
to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain. The expense relating to
any provision is presented in the income statement net of any
reimbursement.
Income Taxes
Tax expense comprises current tax and deferred taxes.
The income tax provisions for the years ended 31 December
2010 and 2009 were calculated in accordance with the
Temporary Income Tax Law no. 28 of 2009, and the Income
Tax Law no. (57) of 1985 and its subsequent amendments,
respectively.
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